Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

The Best Dividend ETFs Aren’t Dividend ETFs At All

Tue, Sep 27, 10:14 AM ET, by Michael Johnston

As the ETF industry has expanded rapidly in recent years, the universe of asset classes and investment strategies accessible through the exchange-traded wrapper has increased dramatically. In addition to funds offering exposure to natural resources and volatility–two asset classes previously beyond the reach of many investors–a number of products have popped up that seek to deliver opportunities to tap into intriguing investment methodologies in a cost efficient and time efficient manner.

One area of tremendous interest focuses on dividends; there are literally dozens of ETFs that are designed to concentrate exposure on dividend-paying stocks, from those linked to dividend-weighted methodologies to those with stringent consistency requirements for inclusion. Popular equity funds in the space include DOD, IDV, and HDV; while products with international flavor like PID, DWX, and EDIV can help investors expand the geographic scope of their portfolio’s holdings.

Dividend-focused ETFs may be appealing to a number of different types of investors. For those seeking relatively low risk equity exposure, dividend-focused strategies allow for a dialing back of risk while still keeping a toe in the water. For those seeking to beef up current returns with bond yields at all time lows, some of the yields paid out might be rather attractive.

For investors seeking broad-based stock exposure tilted towards companies with the highest dividend yields, funds such as VIG and DTD might be good fits [see Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields]. But for those looking to max out current yield, there are a number of other exchange-traded products without “dividend” in the name that are capable of delivering much more handsome returns:

MLP ETFs (And ETNs)

The Master Limited Partnership (MLP) sector has been seeing a surge in popularity thanks to the robust growth of the ETF industry, which has allowed for cost-efficient exposure to this unique corner of the domestic energy market. MLPs generate fee-based revenues as they own and operate energy infrastructure assets such as natural gas storage tanks and crude oil pipelines [see Do You Need An MLP ETF?].

MLPs have taken on appeal largely thanks to their favorable tax treatment, allowing for investors to rake in a hefty current income. By generating at least 90% of income from natural resource-based activities (such as transportation and storage), an entity can qualify as an MLP and not be taxed as a corporation. In other words, shareholders of MLPs are treated as partners by the IRS, allowing for investors to avoid double taxation of earnings.

There are several offerings in the MLPs ETFdb Category, and with this asset class in particular, the choice of product structure is very important as the tax nuances between ETFs and ETNs can be significant [see MLP Exposure: ETF or ETN]. Below we have briefly highlighted two of the products available to investors:

  • ALPS Alerian MLP ETF (AMLP): This fairly new ETF has been quite popular as it has amassed more than $1.3 billion in assets since its launch in the latter half of 2010. AMLP tracks the Alerian MLP Infrastructure Index, and its underlying portfolio is comprised of 25 components, with two-thirds of all assets going to the top ten holdings alone. The top three MLPs represented in the fund include Enterprise Products Partners, Kinder Morgan Energy Partners, and Magellan Midstream Partners. AMLP recently had an annual dividend yield of 6.4%.
  • JPMorgan Alerian MLP Index ETN (AMJ): This ETN is the largest products offering investors access to the energy MLP sector. The ETN structure gives it a potential leg-up over comparable ETFs in the space since shareholders of AMJ are faced with less administrative burdens by avoiding an annual K-1 tax form [see MLP ETFs: Fact And Fiction]. AMJ recently had an annual dividend yield of 5.3%.

BDC ETNs

Business Development Companies (BDCs) are generally involved in lending money to small and mid-sized companies, often times resembling private equity firms. Similar to MLPs, these entities are eligible for some advantageous tax treatments when certain portions of earnings are paid out. BDCs pay almost no corporate taxes as long as they pay out at least 90% of their profit and capital gains as taxable dividends. BDCs can also earn exemption from the 4% nondeductible federal excise tax if they distribute at least 98% of ordinary income each calendar year.

This asset class boasts a juicy yield and is particularly appealing since it offers exposure to private companies that are simply not accessible to most investors. Achieving exposure to this asset class through an ETN may have some unique tax consequences as the coupon payments from BDCS will be treated as ordinary income for tax purposes [see Tax Advantages Of ETNs]. There are currently two products available offering exposure to BDCs:

  • UBS E-TRACS Wells Fargo Business Development Company Index (BDCS): This ETN holds a portfolio of 26 BDCs, although it effectively offers exposure to more than 1,000 privately held companies through the broad-based portfolios of the component companies. Also as mentioned previously, investors have no direct way of accessing this asset class since the companies are not publicly-traded. BDCL provides investors with 2x monthly leveraged exposure to the same index as BDCS, which recently had an annual yield in the neighborhood of 7.5%.

Mortgage REIT ETFs

Mortgage REITs are often overlooked by many given then ongoing anxiety over the health of the U.S. housing market. Although quite risky, this asset class is very capable of generating impressive returns for investors looking to beef up the current income portion of their portfolios [see How To Find The Right Dividend ETF]. Mortgage REITs are different from traditional equity REITs; instead of owning and operating physical real estate, mortgage REITs issue mortgages or acquire loans and other mortgage-backed securities. It isn't uncommon for mortgage REITs to leverage up to seven or eight times their capital, allowing for significant distribution yields. Some interesting offerings include:

  • iShares FTSE NAREIT Mortgage REITs Index Fund (REM): This ETF is linked to an index that measures the performance of the residential and commercial real estate, mortgage finance, and savings associations sectors of the U.S. equity market. REM holds a shallow basket of 50 securities, with the top ten components accounting for over two-thirds of the entire portfolio. This fund does a very nice job of rounding out exposure to small and mid cap size mortgage REITs, and it recently had an annual yield of about 10.6%.
  • Van Eck Market Vector Mortgage REIT Income ETF (MORT): This new fund tracks the Market Vectors Global Mortgage REITs Index, and requires that the constituent companies derive at least 50 percent of their revenues from mortgage REITs. MORT holds a portfolio of about 25 different REITs, with the largest allocations going to Annaly Capital Management (about 20%) and American Capital Agency Corp (12%).

Disclosure: No positions at time of writing.


SDI Glossary: "Dividend" Definition
SDI Glossary: "Equity" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Mortgage REIT" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   Alerian   BDCS   BDCs   ETFs   ETNs   Index   MLPs   Mortgage   REITs   This   allowing   annual   asset   based   class   companies   current   different   dividend   efficient   energy   equity   exposure   from   fund   funds   have   income   investors   least   mortgage   natural   number   other   over   portfolio   products   recently   since   some   that   their   this   those   through   traded   very   with   yield   yields

| More

RUSS Crosses Below Key Moving Average Level
Thu, Apr 17, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the Daily Russia Bear 3x Shares ETF (RUSS) crossed ...

Red Hat Inc Moves Up In Analyst Rankings, Passing Eastman Chemical Co.
Thu, Apr 17, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

Biotech ETF Experiences Big Outflow
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: BBH, REGN, ALKS, ILMN Exchange traded funds (ETFs) trade just ...

XBI, MNKD, UTHR, ARNA: Large Inflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XBI, MNKD, UTHR, ARNA Exchange traded funds (ETFs) trade just ...

XME, ATI, ACI, SLCA: Large Outflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XME, ATI, ACI, SLCA Exchange traded funds (ETFs) trade just ...

RWO, BXP, VNO, AVB: Large Inflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: RWO, BXP, VNO, AVB Exchange traded funds (ETFs) trade just ...

CSD, WWAV, PSX, STRZA: Large Outflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: CSD, WWAV, PSX, STRZA Exchange traded funds (ETFs) trade just ...

PGX: ETF Inflow Alert
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PGX Exchange traded funds (ETFs) trade just like stocks, but ...

PowerShares KBW Capital Markets Portfolio Breaks Above 200-Day Moving Average - Bullish for KBWC
Wed, Apr 16, 4:15 PM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares KBW Capital Markets Portfolio ETF (KBWC) crossed ...

Qualcomm, Inc. Moves Up In Analyst Rankings, Passing Monsanto Co.
Wed, Apr 16, 1:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

EEMV: Large Outflows Detected at ETF
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: EEMV Exchange traded funds (ETFs) trade just like stocks, but ...

ITOT, QCOM, MCD, ABBV: Large Outflows Detected at ETF
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: ITOT, QCOM, MCD, ABBV Exchange traded funds (ETFs) trade just ...

HEDJ: ETF Inflow Alert
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: HEDJ Exchange traded funds (ETFs) trade just like stocks, but ...

Chevron Corporation a Top Ranked SAFE Dividend Stock With 3.3% Yield (CVX)
Wed, Apr 16, 8:14 AM ET, by ETF Channel

Chevron Corporation (CVX) has been named to the Dividend Channel ''S.A.F.E. 25'' list, signifying a ...

XTL Crosses Below Key Moving Average Level
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Telecom ETF (XTL) crossed below their ...

PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD) Shares Cross Below 200 DMA
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares S&P SmallCap Consumer Discretionary Portfolio ETF (PSCD) ...

PowerShares WilderHill Clean Energy Portfolio Breaks Below 200-Day Moving Average - Notable for PBW
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares WilderHill Clean Energy Portfolio ETF (PBW) crossed ...

IYZ Makes Notable Cross Below Critical Moving Average
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the iShares U.S. Telecommunications ETF (IYZ) crossed below their ...

ITE Makes Notable Cross Below Critical Moving Average
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR Barclays Intermediate Term Treasury ETF (ITE) crossed ...

Time Warner Inc Achieves #87 Analyst Rank, Surpassing Tyson Foods, Inc.
Tue, Apr 15, 12:24 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

PJP, LLY, DEPO, BAX: ETF Outflow Alert
Tue, Apr 15, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: PJP, LLY, DEPO, BAX Exchange traded funds (ETFs) trade just ...

DBP Crosses Below Key Moving Average Level
Tue, Apr 15, 11:24 AM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares DB Precious Metals Fund ETF (DBP) crossed ...

PowerShares Senior Loan Portfolio (BKLN) Enters Oversold Territory
Tue, Apr 15, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares Senior Loan Portfolio ETF (BKLN) entered into ...

Shares of XHB Now Oversold
Tue, Apr 15, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Homebuilders ETF (XHB) entered into oversold ...

Old Republic International Corp. a Top Ranked SAFE Dividend Stock With 4.6% Yield (ORI)
Tue, Apr 15, 9:24 AM ET, by ETF Channel

Old Republic International Corp. (ORI) has been named to the Dividend Channel ''S.A.F.E. ...

MUAE Crosses Below Key Moving Average Level
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the iShares 2016 AMT-Free Muni Term ETF (MUAE) crossed ...

First Trust NYSE Arca Biotechnology Index Fund (FBT) Shares Cross Below 200 DMA
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the First Trust NYSE Arca Biotechnology Index Fund ETF ...

VRD Crosses Above Key Moving Average Level
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the SPDR Nuveen S&P VRDO Municipal Bond ETF (VRD) ...

iShares U.S. Home Construction Getting Very Oversold
Mon, Apr 14, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the iShares U.S. Home Construction ETF (ITB) entered into ...

Shares of DWAS Now Oversold
Mon, Apr 14, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the PowerShares DWA SmallCap Momentum Portfolio ETF (DWAS) entered ...

PSL Crosses Critical Technical Indicator
Mon, Apr 14, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the PowerShares DWA Consumer Staples Momentum Portfolio ETF (PSL) ...

CUT Crowded With Sellers
Mon, Apr 14, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim Timber ETF (CUT) entered into oversold territory, ...

Agilent Technologies, Inc. Achieves #7 Analyst Rank, Surpassing Cognizant Technology Solutions Corp.
Mon, Apr 14, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

See How Procter & Gamble Co. Ranks Among Analysts' Top Dow 30 Picks
Mon, Apr 14, 11:54 AM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that Procter & Gamble Co. ...

EDC: Large Inflows Detected at ETF
Mon, Apr 14, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: EDC Exchange traded funds (ETFs) trade just like stocks, but ...

KBE, BPOP, VLY, CFR: ETF Outflow Alert
Mon, Apr 14, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: KBE, BPOP, VLY, CFR Exchange traded funds (ETFs) trade just ...

XOP, SGY, CRK, PVA: Large Outflows Detected at ETF
Mon, Apr 14, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XOP, SGY, CRK, PVA Exchange traded funds (ETFs) trade just ...

T Named Top 25 SAFE Dividend Stock Increasing Payments For Decades
Mon, Apr 14, 8:14 AM ET, by ETF Channel

AT&T Inc (T) has been named to the Dividend Channel ''S.A.F.E. 25'' list, signifying a ...

RCD Makes Notable Cross Below Critical Moving Average
Fri, Apr 11, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF ...

RFG Crosses Below Key Moving Average Level
Fri, Apr 11, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG) ...

Biotech Getting Very Oversold
Fri, Apr 11, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the Biotech ETF (BBH) entered into oversold territory, changing ...

Monster Beverage Corp Moves Up In Analyst Rankings, Passing Sempra Energy
Fri, Apr 11, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

RTH Makes Notable Cross Below Critical Moving Average
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Retail ETF (RTH) crossed below their 200 day ...

KCE Makes Notable Cross Below Critical Moving Average
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the SPDR S&P Capital Markets ETF (KCE) crossed below ...

PEJ Crosses Below Key Moving Average Level
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (PEJ) ...

PowerShares KBW High Dividend Yield Financial Portfolio Breaks Below 200-Day Moving Average - Notable for KBWD
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares KBW High Dividend Yield Financial Portfolio ETF ...

GURU Makes Notable Cross Below Critical Moving Average
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Guru Index ETF (GURU) crossed below their 200 ...

Consumer Discretionary Select Sector SPDR Fund (XLY) Shares Cross Below 200 DMA
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Consumer Discretionary Select Sector SPDR Fund ETF (XLY) ...

iShares U.S. Insurance Breaks Below 200-Day Moving Average - Notable for IAK
Fri, Apr 11, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the iShares U.S. Insurance ETF (IAK) crossed below their ...

VO, FRX, WDC, CERN: Large Inflows Detected at ETF
Fri, Apr 11, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: VO, FRX, WDC, CERN Exchange traded funds (ETFs) trade just ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

The Best Dividend ETFs Aren’t Dividend ETFs At All | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.